California steps into power business

Posted: Saturday, February 17, 2001

JENNIFER COLEMANThe Associated Press

SACRAMENTO, Calif. - Plunging California deeper into the energy business, Gov. Gray Davis proposed a multibillion-dollar plan Friday to rescue two utilities from the brink of bankruptcy in part by buying miles of electric transmission lines.

The plan would also require the parents of Southern California Edison and Pacific Gas and Electric Co. to help pay off the utilities' debts, which both say are approaching $13 billion.

Under the plan, the state would spend billions for power lines owned by PG&E, SoCal Edison and the state's other investor-owned utility, San Diego Gas & Electric.

Davis declined to estimate how much the lines would cost, saying negotiations would start at the book value - some $3.4 billion for Edison and PG&E alone.

Buying the lines could cost the state $7 billion, Democratic Assemblyman Fred Keely said. Enough of the Legislature's majority Democrats appear to support the proposal to pass it.

Davis said the plan would be financed with no rate increases.

"Ratepayers did not ask for deregulation," he said. "They were promised that rates would go down . . . . Obviously this system was flawed from its outset."

The state has already pledged to spend at least $10 billion in revenue bonds to buy power for customers of SoCal Edison and PG&E, both of which have been denied credit by electricity suppliers.

The state has committed close to $2 billion since early January to buy electricity to keep the lights on for customers of the two cash-strapped utilities.

A law signed by Davis last month allows the state to enter into lower-cost, power-buying agreements lasting from several months to a decade. Until then, the state is spending about $45 million a day.

Critics said customers will end up paying for the latest plan.

Republican Assemblyman John Campbell said the governor's overall plan has grown to more than $20 billion, spread out over state-issued revenue bonds that will be paid back by customers.

"There's no way this can take place without massive rate hikes," Campbell said.

Added Harvey Rosenfield of The Foundation for Taxpayer and Consumer Rights: "This is shaping up to be a blowout, not even a bailout."

The three utilities have been hit hard by high wholesale electricity costs. Edison and PG&E say they've lost the $13 billion since June, and they can't pass on costs to customers because of a rate freeze included in the state's 1996 utility deregulation law.

The rate freeze was lifted for the San Diego utility this summer.

Also Friday, a federal judge was considering whether to continue forcing three wholesalers to keep selling electricity to the managers of the state power grid despite worries that PG&E and SoCal Edison won't pay for it.

Davis, arguing wholesalers are trying to lock California into expensive short-term power purchases, has refused to make the state financially responsible for last-minute energy buys that grid managers make to avoid blackouts.

The state was under a Stage 3 emergency for a 32nd straight day Friday, as power reserves hovered around 1.5 percent. Rolling blackouts, which hit parts of the state for two days last month, were not expected.